Global equities fell on comments by Jerome Powell. Markets had a tumultuous week on the back of comments made by Federal Reserve Chairman Jerome Powell at the Washington Forum. Powell’s remarks on the “lack of progress” on the inflation front, and solid growth and labour strength in the US, caused investors to reprice assets for fewer interest rate cuts in the US this year. The S&P 500 and the NASDAQ dropped 3.0% and 5.5%, respectively for the week.

In addition to shifting rate cut expectations, escalations of tensions in the Middle East spooked investors; across the pond, Europe and Asia stock markets also declined. The Stoxx 600 fell 0.7% and the FTSE retreated 1.2% for the week. The Nikkei 225 and HSI plunged 6.2% and 3.0% respectively. SHCOMP bucked the trend and rose 1.5% as China’s GDP expanded 5.3% in the first quarter, higher than analysts’ expectations, leading to some optimism for this market.

Topic in focus: Japan Equities – Resilient despite challenges. Notwithstanding some consolidation, Japan remains one of the strongest performers vis-à-vis other regions on a year-to-date basis; the Nikkei 225 and TOPIX indices are up 10.8% and 11.0% respectively. This performance came on the back of corporate reforms issued by the Tokyo Stock Exchange to boost the valuation and return metrics of Japanese companies. Additionally, optimism has been boosted by a potential export recovery, driven by increasing demand for artificial intelligence-related (AI) technologies (e.g. chips, components and equipment, etc.). Despite a strong first-quarter performance, we anticipate the Japanese market will face challenges in the form of monetary policy normalisation, a potential unwinding of yen carry trades, as well as the US election cycle and monetary policy trajectory. Amid these uncertainties, we maintain our neutral stance on Japan, with select interest on the semiconductor industry. The leadership position of Japanese companies in semiconductor materials and manufacturing – accounting for 50% of the world’s in the manufacture of photomasks, photoresist, and silicon wafers – positions the sector well to ride the AI semiconductor boom.

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